• HRA is exempt from income tax upto a certain limit.
• The amount that can be availed as exemption from taxable income is the lower of the following 3 items:
a) The actual HRA received as part of the salary
b) The actual rent paid – 10% of (Basic Salary + DA)
c) 50% of Basic Pay received as part of the salary, if the employee is living in a metro. 40% of Basic Pay received as part of the salary, if the employee is living in a non-metro.
Example let us assume that a person is working in Chennai and following are his details
Basic Pay – INR 10,000
HRA – INR 4,000
The rent paid is INR 7,000
The amount that can be claimed as HRA exemption will be the lower of the 3:
Actual HRA received = INR 4,000
50% of basic (since city is Chennai) = 50% of INR 10,000 = INR 5,000
Actual rent – 10% of Basic = INR 7000 – (10% of 10,000) = INR 6,000
The lowest of the 3 amounts is INR 4000. Hence the amount that will be allowed as HRA exemption will be INR 4,000.
• HRA exemption can be claimed only if HRA is a part of the salary and the person is staying in a rented accommodation and paying rent.
• In order to claim the HRA exemption the person needs to submit the respective rent receipts for the same.
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